Real Estate market for office space remains healthy in Southwest Florida

Despite work-from-home trends, the need for Fort Myers-Naples area office space is growing.

Published 6:00 a.m. ET November 19, 2020
Parker Commons Office Park.

Despite the growing work-from-home trend, Southwest Florida may actually need more office space.

Brokers say the rush by companies and individuals moving out of crowded cities in the Midwest and Northeast will likely keep office vacancies low and rents stable throughout the Fort Myers-Naples region.

Widespread reports of collapsing office markets are mostly limited to big cities such as New York and Chicago. But here’s the unreported story: Smaller office markets such as Southwest Florida are much healthier as workers feel safe returning to their workspaces.

“We’re assisting a couple of companies right now who have their corporate offices in the Midwest and they’re looking to relocate their offices down here,” said Richard Clarke, president of Lee & Associates in Southwest Florida. “Some of these people already own homes down here and those that don’t are looking. It seems that everyone we speak with wants to get out of the bigger cities.”

The CoStar data provided by Lee & Associates confirms the health of Southwest Florida’s office market. In Lee County only 4.9% of the total office space is vacant and top-quality Class A space is even harder to find. Average office rents (net of expenses such as property taxes and common-area maintenance) rose more than 4% to $12.93 per square foot in the second quarter of 2020 compared with the same quarter one year ago. As an example, Parker Commons Office Park, which is almost fully leased, illustrates the strong demand for Class A office space.

In Collier County, the office vacancy rate increased from 8% in second quarter 2019 to 9% in second quarter 2020 while average net office rents dipped slightly from $21.68 to $20.71 per square foot during the same period. “The big difference between Collier and Lee counties are the rental rates,” said Rodney Fidler, senior vice president of Lee & Associates in Southwest Florida. “Naples rents are much higher due to, among other things, the number of Class A buildings in Naples compared to Fort Myers.”

Over the last five years, office rents have surged about 20% as vacancies have dropped. Clarke and Fidler forecast that annual rent increases will be 2% to 3% as landlords and tenants each grapple with economic uncertainty. Still, landlords who were generous with incentives during the lockdown in the spring have become more aggressive as space continues to be absorbed.

Most local Southwest Florida office users have brought employees back on-site and some firms have even expanded to give their teams more space to make them feel safe. “We continue to lease space and have sold several properties throughout the pandemic,” said Fidler.

Firms seeking to expand in Southwest Florida range across a broad spectrum of industries despite technology that lets many people work from home. Medical office space continues to be in high demand even as telehealth becomes more widespread. “The medical office sector is unscathed, really. It hasn’t materially been affected,” said Fidler, who noted that technology can’t replace many medical procedures and exams that must be performed in person.

The biggest constraint in Southwest Florida, brokers say, is the lack of new office space to relieve the tight vacancies. That’s because construction costs have surged and banks have become cautious about lending. “Construction costs have shot up so high, it doesn’t make economic sense to construct speculative space given current rental rates. And the banks haven’t forgotten about the burn they got in the last recession,” said Clarke.

“We believe Southwest Florida is getting close to the point for new construction to happen and the first developer who will take the risk to build speculative office space will be rewarded,” added Fidler. “The first one who does that with the right product in a good location will do well. A great example is an east coast of Florida developer whom we sold land to last year is now in the design stage of a new multi-building office project that will be located on Daniels Parkway in South Fort Myers.”

For more information about office leasing and sales opportunities in Southwest Florida, contact Rodney Fidler, CCIM (certified commercial investment member), at 239-470-2317 or email rfidler@lee-associates.com, or Richard Clarke at 239-210-7603 or email rclarke@lee-associates.com.

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